Plans for single-counterparty credit limits (SCCL) are among
the most likely rules to be scrapped, delayed or severely
watered down by the Fed under the new US political
administration, legal experts suggest.
The proposals, part of Dodd-Frank, place buffers on
excessive credit exposures between the major systemically
important US banks and were set to be phased-in during
2017 and 2018.
Net credit exposure of securities finance transactions
(SFTs), including securities lending and repo trades between
entities, are taken into account.
A PwC whitepaper published in October said it would be an
"uphill battle" to get Fed officials to change their mind on
parts of SCCL.
It also pointed out that the SCCL methodology around SFTs
could cause exposure amounts to increase dramatically for
securities lending a repo products.
However, Trump's surprise election win and his
administration's uncertain impact on regulatory initiatives may
mean SCCL rules are cancelled, eased or postponed at the very
"It’s all speculation at this stage," a
securities lending legal expert, who wished to remain
anonymous, told Global Investor/ISF at the IMN
Securities Finance event in Florida this week.
"However, SCCL is certainly one of the regulations which
will be reviewed. There could be a major reversal or
part-reversal under the new administration."
If the rules were to be implemented, major US banks will
have to diversify exposures and seek counterparties that may
receive favorable treatment in the exposure calculation
Industry groups, including derivatives trade body ISDA, said
last year’s SCCL re-proposals from the Fed
contained "significant flaws and weaknesses".
It added that the plans would potentially unnecessarily
restrict securities financing and certain other transactions,
which could have substantial unintended negative consequences
ISDA also urged alignment with the Basel
Committee’s own large exposures framework where
appropriate as a US policy matter.